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World’s Biggest Pension Fund Rides Stocks to $46 Billion Gain

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Japan's Pension Fund Reports Record $64B Loss
  • World’s Biggest Pension Fund Rides Stocks to $46 Billion Gain

The world’s biggest pension fund posted its fourth-straight quarterly gain, as global stocks rose and a decline in the yen against both the dollar and the euro helped boost the value of its overseas investments.

The Government Pension Investment Fund returned 3.5 percent, or 5.1 trillion yen ($46 billion), in the three months ended June 30, increasing assets to a record 149.2 trillion yen, it said in Tokyo on Friday. Domestic equities added 2.3 trillion yen as the benchmark Topix index rose in the period, while the value of foreign stocks increased by 1.9 trillion yen.

The Japanese retirement fund’s recent string of quarterly gains follows a series of losses after it overhauled its strategy in 2014 to buy more shares and cut debt. GPIF, which holds the majority of its stock investments in strategies that track indexes, benefits when broader equity markets are rising.

“With stronger stocks, we’re not seeing a repeat of trillions of yen of paper losses that we saw in the past,” said Ayako Sera, a market strategist with Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Performance is improving, but we still have to maintain a calm view.”

The fund’s Japanese share holdings returned 6.6 percent over the three months, matching the Topix’s performance. Overseas stocks added 5.5 percent, helped by a 7.6 percent drop in the yen against the euro, the biggest decline since 2013, as well as weakness versus the greenback, both of which increase the value of foreign holdings when repatriated. The MSCI All-Country World Index climbed 3.6 percent last quarter.

“A positive market environment continued” in the June quarter, with good global economic data and corporate earnings supporting increases in stocks, GPIF President Norihiro Takahashi said in a statement Friday. “The yen was in a weakening trend due to expectations that the Federal Reserve will raise interest rates and the ECB will move toward normalizing monetary policy, while the Bank of Japan’s quantitative easing policy continued.”

The fund’s domestic bond holdings, which accounted for 30.5 percent of total assets, managed a nearly flat return. Foreign bonds added 4.5 percent, making up 13.5 percent of the GPIF’s investments at the end of June.

Japanese stocks accounted for 24.4 percent of holdings, while overseas equities were 23.9 percent of assets. The target levels for GPIF’s portfolio are 35 percent for domestic debt, 15 percent for foreign bonds, and 25 percent each for domestic and overseas shares.

Alternative assets accounted for 0.1 percent of GPIF holdings, well below the allowable limit of 5 percent. A recent proposal by the health ministry to allow the fund to trade stock index futures could increase its alternative-asset holdings. The fund has also invested around 1 trillion yen into indexes that track Japanese stocks with high environmental, social and corporate governance scores.

“They’ve only lit the lantern now, but I expect this to keep expanding further,” said Koichi Kurose, Tokyo-based chief market strategist at Resona Bank Ltd. on the fund’s ESG investments.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Energy

Egbin Decries N388B NBET Debt, Idle Capacity

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Egbin-Power-Plant - Investors King

Egbin Power Plc, the biggest power station in Nigeria, has said it is owed N388bn by the Nigerian Bulk Electricity Trading Plc for electricity generated and fed into the national grid.

The company disclosed this on Tuesday during an oversight visit by the Senate Committee on Privatisation, led by its Chairman, Senator Theodore Orji, to the power station, located in Ikorodu, Lagos.

The government-owned NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells it to the distribution companies, which then supply it to the consumers.

The Group Managing Director, Sahara Power Group, Mr. Kola Adesina, told the lawmakers that the total amount owed to Egbin by NBET included money for actual energy wheeled out, interest for late payments and available capacity payments.

Egbin is one of the operating entities of Sahara Power Group, which is an affiliate of Sahara Group. The plant has an installed capacity of 1,320MW consisting of six turbines of 220 megawatts each.

The company said from 2020 till date, the plant had been unable to utilize 175MW of its available capacity due to gas and transmission constraints.

Adesina said, “At the time when we took over this asset, we were generating averagely 400MW of electricity; today, we are averaging about 800MW. At a point in time, we went as high as 1,100MW. Invariably, this is an asset of strategic importance to Nigeria.

“The plant needs to be nurtured and maintained. If you don’t give this plant gas, there won’t be electricity. Gas is not within our control.

“Our availability is limited to the regularity of gas that we receive. The more irregular the gas supply, the less likely there will be electricity.”

He noted that if the power generated at the station was not evacuated by the Transmission Company of Nigeria, it would be useless.

Adesina said, “Unfortunately, as of today, technology has not allowed the power of this size to be stored; so, we can’t keep it anywhere.

“So, invariably, we will have to switch off the plant, and when we switch off the plant, we have to pay our workers irrespective of whether there is gas or transmission.

“Sadly, the plant is aging. So, this plant requires more nurturing and maintenance for it to remain readily available for Nigerians.

“Now, where you have exchange rate move from N157/$1 during acquisition in 2013 to N502-N505/$1 in 2021, and the revenue profile is not in any way commensurate to that significant change, then we have a very serious problem.”

He said at the meeting of the Association of Power Generation Companies on Monday, members raised concern about the debts owed to them.

He added, “All the owners were there, and the concern that was expressed was that this money that is being owed, when are we going to get paid?

“The longer it takes us to be paid, the more detrimental to the health and wellbeing our machines and more importantly, to our staff.”

Adesina lamented that the country’s power generation had been hovering around 4,000MW in recent years.

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Crude Oil

Oil Rises on U.S. Fuel Drawdowns Despite Surging Coronavirus Cases

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U.S. Crude Oil - Investors King

Oil prices climbed on Wednesday after industry data showed U.S. crude and product inventories fell more sharply than expected last week, reinforcing expectations that demand will outstrip supply growth even amid a surge in Covid-19 cases.

U.S. West Texas Intermediate (WTI) crude futures rose 48 cents, or 0.7%, to $72.13 a barrel, reversing Tuesday’s 0.4% decline.

Brent crude futures rose 34 cents, or 0.5%, to $74.82 a barrel, after shedding 2 cents on Tuesday in the first decline in six days.

Data from the American Petroleum Institute industry group showed U.S. crude stocks fell by 4.7 million barrels for the week ended July 23, gasoline inventories dropped by 6.2 million barrels and distillate stocks were down 1.9 million barrels, according to two market sources, who spoke on condition of anonymity.

That compared with analysts’ expectations for a 2.9 million fall in crude stocks, following a surprise rise in crude inventories the previous week in what was the first increase since May.

Traders are awaiting data from the U.S. Energy Information Administration (EIA) on Wednesday to confirm the drop in stocks.

“Most energy traders were unfazed by last week’s build, so expectations should be high for the EIA crude oil inventory data to confirm inventories resumed their declining trend,” OANDA analyst Edward Moya said in a research note.

On gasoline stocks, analysts had expected a 900,000 barrel decline drop in the week to July 23.

“The U.S. is still in peak driving season and everyone is trying to make the most of this summer,” Moya said.

Fuel demand expectations are undented by soaring cases of the highly infectious delta variant of the coronavirus in the United States, where the seven-day average for new cases has risen to 57,126. That is about a quarter of the pandemic peak.

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Crude Oil

Oil Price Rises To $74.70 Despite Delta Variant

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Oil prices - Investors King

Oil price inched higher on Tuesday despite the fast spreading COVID-19 Delta variant. Brent crude oil, against which Nigerian oil is priced gained, $0.20 or 0.27 percent to $74.70 per barrel on Tuesday at 12:05 am Nigerian time.

Delta variant is spreading in China, the world’s largest importer of crude oil, forcing crude oil investors to start cutting down on their oil demand projections.

The Delta variant is still spreading and China has started to clamp down on teapots, so their import growth would not be that much,” said Avtar Sandu, a senior commodities manager at Singapore’s Phillips Futures, referring to independent refiners.

Strong U.S. demand and expectations of tight supplies have helped crude oil to recover from a 7 percent slump recorded last Monday to mark their first gains in two to three weeks last week.

Global oil markets are expected to remain in deficit despite a decision by the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, to raise production through the rest of the year.

There is seemingly a battle within the energy complex between the prevailing supply deficit engineered by OPEC+ and the threat of the COVID-19 Delta variant in regions with low vaccination rates,” said StoneX analyst Kevin Solomon.

The slow take-up of vaccinations will continue to limit some upside in oil demand in those regions, and there will be intermittent spells in the recovery in the coming months.

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